One-Touch UBI Hitting its Stride

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UBI's achievement of getting two products to the global market through heavyweight healthcare partners should be applauded. The next thing the market is looking for is a launch of its own product.

Medical diagnostics company Universal Biosensors, Inc. (UBI) is having a good 2015 so far, with the shares moving from 18 cents to 39 cents.

That is a far cry from the $1.80 at which UBI traded in 2010, but arguably the company has in a lot stronger shape than it was then.

Established in 2001, Universal Biosensors focuses on the development, manufacture and commercialisation of a range of in vitro point-of-care (POC) diagnostic tests. The tests come out of UBI’s technology platform, which uses a novel electro-chemical cell that can give enhanced measurements in blood. The core technology is a disposable, multi-layer test strip, which uses the company’s proprietary electrochemical sensors to rapidly and accurately measure bio-markers in the blood.

UBI got its first major customer in 2009 when it signed a deal with Johnson & Johnson’s LifeScan subsidiary, to supply disposable blood testing strips for LifeScan’s One Touch Verio device, which is used by diabetics to self-monitor blood glucose levels (the product that was developed with UBI: the two companies had worked together since 2001.) The One Touch Verio had its world launch in The Netherlands in January 2010, and was launched in Australia in September 2010. This system is now being marketed worldwide and generates a growing revenue stream for UBI.

The One Touch Verio launch was the reason for the share price rise to $1.80. But by mid-2014, the stock was in the doghouse, at 13.5 cents, after UBI revealed the details of LifeScan’s exit clause from the agreement. LifeScan can terminate the obligation to pay quarterly service fees once it has paid cumulative quarterly service fees of US$45 million (as of June 30, 2015, LifeScan had paid cumulative quarterly service fees of US$16.8 million.) Where it gives such notice, LifeScan is required to continue to pay the quarterly service fees for the remainder of the year in which notice is given, and at the end of that year, LifeScan must pay a one-time lump sum fee. The sharemarket appeared to perceive the exit clause to be far more favourable to LifeScan than to UBI.

Fortunately for shareholders, UBI had an ace up its sleeve, in the form of Siemens, one of the world's largest suppliers to the healthcare industry, and a major competitor of LifeScan. UBI first announced a collaboration agreement with Siemens in September 2011, when the companies formed a strategic partnership for the development and commercialisation of products for the POC coagulation-testing market. Quite apart from a deal with a second global healthcare leader, the Siemens collaboration validated UBI’s technology and capabilities outside the field of diabetes care, and showed shareholders a potential alternative source of future earnings from the company’s technology.

In December 2014, UBI announced that Siemens Healthcare Diagnostics Inc. had launched the Xprecia Stride coagulation analyser, its first POC coagulation-testing product, in Europe. The Xprecia Stride system incorporates UBI’s unique electro-chemical sensing technology which offers high performance and ease-of-use in an affordable, handheld format. The device is used to test the blood coagulation levels of people taking the drug Warfarin, which is used by an estimated 10 million worldwide.

The December announcement said that UBI would manufacture blood testing strips for the Xprecia Stride device, exclusively, at its plant in the Melbourne suburb of Rowville. UBI said that it and Siemens had been collaborating on the development of the product for more than three years. Not only did the Xprecia Stride deal signify the second global partnership for UBI, the product launch triggered a milestone payment of $1 million from Siemens to UBI.

Patients are prescribed Warfarin for a variety of reasons, including the treatment of blood clots in the veins, or certain heart conditions that increase the likelihood of a potentially life-threatening clot forming. Patients on Warfarin require frequent testing to assess the clotting tendency of their blood. The Prothrombin Time (PT-INR) test allows physicians to adjust patient doses for diet and lifestyle changes.

Patients on Warfarin require frequent testing of the clotting tendency of their blood. PT-INR testing allows physicians to adjust patient doses for diet and lifestyle changes.

The worldwide point-of-care coagulation testing market was estimated at around US$1 billion in 2014 and is forecast to grow by 9% a year, to reach US$1.4 billion by 2018.

The UBI technology platform uses opposing electrodes, instead of the co-planar electrodes used in conventional strip technology. The simpler electrode technology needs a smaller blood sample than the conventional strip technology, removes interferences and allows for automated continuous manufacturing, as opposed to the labour-intensive ‘batch’ manufacturing of the conventional technology.

Xprecia Stride is an important play for Siemens, which is entering a new market (POC Professional PT-INR testing), where it will go head-to-head with Roche and Alere. Siemens and UBI are targeting the second half of 2016 for regulatory approval and commercial launch of these additional tests by Siemens.

Subsequently, UBI has achieved the fourth out of six milestones payable under its agreement with Siemens, the latest last month. This milestone, which triggered another payment of US$1 million, was achieved when Siemens made a premarket 510(k) submission to the US Food and Drug Administration (FDA) for regulatory clearance in the US of the Xprecia Stride POC system.

Now generating revenue from two products in the market, UBI has started to show big financial improvements. In the June 2015 half-year, revenue rose by 160 per cent, to $7.5 million. Revenue from quarterly service fees – generated by sales of OneTouch Verio blood glucose test strips – jumped by 153 per cent, to $6.5 million. The net loss for the half, of $4.1 million, was a significant improvement on the net loss of $7 million in the June half of 2014. UBI reported a cash balance of $10.7 million, and total long-term borrowings of US$15 million, as at 30 June 2015: this was nicely augmented in July with an $8.2 million tax refund under the Australian government’s research and development (R&D) tax incentive, relating to the company’s R&D expenses in FY14.

That will help UBI’s continued development of its own PT-INR test for decentralised settings. Reliability and clinical testing are underway and preparations are now being made for final design verification and regulatory trials. UBI is targeting a product launch in late 2015.

UBI lost a fair bit of trust when the market learned the full extent of LifScan’s “get-out clause” – but it can’t be faulted for the work it has put in to repair that breach. While it must make for an interesting life, serving two big clients that are competitors, UBI’s achievement of getting two products to the global market through heavyweight healthcare partners should be applauded. The next thing the market is looking for is a launch of its own product.

James was founding editor of Shares magazine, and oversaw one of the most successful magazine launches in Australia. He has also written for BRW, Personal Investor, The Age and Management Today, and was subsequently personal investment editor at The Australian and editor of financial website, investorweb.com.au